j2 Global Reports Third Quarter 2018 Results

LOS ANGELES--(BUSINESS WIRE)--Nov. 5, 2018--
j2 Global, Inc. (NASDAQ: JCOM) today reported financial results for the
third quarter ended September 30, 2018 and announced that its Board of
Directors has declared an increased quarterly cash dividend of $0.4350
per share.

“We enjoyed another record quarter, experiencing solid margin expansion
and strong EPS and free cash flow,” said Vivek Shah, CEO of j2 Global.
“We also closed on five tuck-in acquisitions across five different
business units, demonstrating diversification in our allocation of
acquisition capital.”

THIRD QUARTER 2018 RESULTS

Q3 2018 quarterly revenues increased 7.0% to a third quarter record of
$292.7 million compared to $273.6 million for Q3 2017.

Net cash provided by operating activities increased to $89.8 million
compared to $67.3 million for Q3 2017. Q3 2018 free cash flow(1) increased
29.3% to $73.5 million compared to $56.8 million for Q3 2017. The
increase in free cash flow(1) is primarily due to lower
income tax payments and an increase to net income after taking into
consideration certain non-cash transactions in comparison to Q3 2017.

Adjusted non-GAAP earnings per diluted share(2)(3) for the
quarter increased 14.2% to $1.53 compared to $1.34 for Q3 2017.

GAAP net income decreased by 5.2% to $30.7 million compared to $32.4
million for Q3 2017.

Quarterly Adjusted EBITDA(4) increased 7.0% to $119.1 million
compared to $111.3 million for Q3 2017. The impact of a change in
accounting principle associated with revenue recognition (ASC 606)
resulted in a decrease of approximately $2.9 million for both the
quarterly revenues and quarterly Adjusted EBITDA for Q3 2018. Without
this impact, Q3 2018 revenues would have been $295.6 million and
Adjusted EBITDA would have been $122.0 million.

j2 ended the quarter with approximately $386 million in cash and
investments after deploying approximately $113 million during the
quarter for acquisitions and j2’s regular quarterly dividend.

Key financial results for Q3 2018 versus Q3 2017 are set forth in the
following table (in millions, except per share amounts). Reconciliations
of Adjusted non-GAAP earnings per diluted share, Adjusted EBITDA and
free cash flow to their nearest comparable GAAP financial measures are
attached to this Press Release.

Q3 2018

Q3 2017

% Change

Revenues

Cloud Services

$150.1 million

$145.8 million

3.0%

Digital Media

$142.6 million

$127.8 million

11.6%

Total Revenue:

$292.7 million

$273.6 million

7.0%

Operating Income

$57.1 million

$63.0 million

(9.4)%

Net Cash Provided by Operating Activities

$89.8 million

$67.3 million

33.4%

Free Cash Flow (1)

$73.5 million

$56.8 million

29.3%

GAAP Earnings per Diluted Share (2)

$0.61

$0.66

(7.6)%

Adjusted Non-GAAP Earnings per Diluted Share (2) (3)

$1.53

$1.34

14.2%

GAAP Net Income

$30.7 million

$32.4 million

(5.2)%

Adjusted Non-GAAP Net Income

$75.1 million

$65.2 million

15.2%

Adjusted EBITDA (4)

$119.1 million

$111.3 million

7.0%

Adjusted EBITDA Margin (4)

40.7%

40.7%

—%

j2 has commenced a review of the timing and recognition of certain
revenues reported by one of its foreign subsidiaries. While the review
is on-going, j2 currently believes that the amount of revenue involved
is up to $2.4 million, and accordingly, j2 has not recognized such
revenue in Q3 2018. j2 has informed its Audit Committee and its auditors
and is working diligently to resolve this matter.

BUSINESS OUTLOOK

For fiscal 2018, the Company reaffirms its estimates that it will
achieve revenues between $1.20 billion and $1.25 billion and Adjusted
EBITDA between $480 million and $505 million. In addition, the Company
is reaffirming its previously revised estimates that it will achieve
Adjusted non-GAAP earnings per diluted share to between $6.16 and $6.46.

Adjusted non-GAAP earnings per diluted share for 2018 excludes
share-based compensation of between $26 million to $29 million,
amortization of acquired intangibles and the impact of any currently
unanticipated items, in each case net of tax.

It is anticipated that the Non-GAAP effective tax rate for 2018
(exclusive of the release of reserves for uncertain tax positions) will
be between 20% and 22%.

The Company has not reconciled the Adjusted non-GAAP earnings per
diluted share and tax rate guidance included in this release to the most
directly comparable GAAP measure because this cannot be done without
unreasonable effort due to the variability with respect to costs related
to acquisitions and taxation, which are potential adjustments to future
earnings. We expect the variability of these items to have a potentially
unpredictable and significant impact on our future GAAP financial
results.

DIVIDEND

j2’s Board of Directors approved a quarterly cash dividend of $0.4350
per common share, a $0.01, or 2.4% increase versus last quarter’s
dividend. This is j2’s twenty-ninth consecutive quarterly dividend
increase since its first quarterly dividend in September 2011. The
dividend will be paid on December 5, 2018 to all shareholders of record
as of the close of business on November 19, 2018. Future dividends will
be subject to Board approval.

Notes:

(1)

Free cash flow is defined as net cash provided by operating
activities, less purchases of property, plant and equipment, plus
contingent consideration. Free cash flow amounts are not meant as a
substitute for GAAP, but are solely for informational purposes.

(2)

The estimated GAAP effective tax rates were approximately 22.9% for
Q3 2018 and 22.1% for Q3 2017. The estimated Adjusted non-GAAP
effective tax rates were approximately 20.8% for Q3 2018 and 27.3%
for Q3 2017.

(3)

Adjusted non-GAAP earnings per diluted share excludes certain
non-GAAP items, as defined in the Reconciliation of GAAP to Adjusted
non-GAAP Financial Measures, for the three months ended September
30, 2018 and 2017 totaled $0.91 and $0.68 per diluted share,
respectively.

(4)

Adjusted EBITDA is defined as earnings before interest and other
expense, net; income tax expense; depreciation and amortization; and
the items used to reconcile EPS to Adjusted non-GAAP EPS, as defined
in the Reconciliation of GAAP to Adjusted non-GAAP Financial
Measures. Adjusted EBITDA amounts are not meant as a substitute for
GAAP, but are solely for informational purposes.

About j2 Global

j2 Global, Inc. (NASDAQ: JCOM) is a leading internet information and
services company consisting of a portfolio of brands including IGN,
Mashable, Humble Bundle, Speedtest, PCMag, Offers.com, Everyday Health
and What To Expect in its Digital Media segment and eFax, eVoice,
Campaigner, Vipre, KeepItSafe and Livedrive in its Cloud Services
segment. j2 reaches over 180 million people per month across its brands.
As of December 31, 2017, j2 had achieved 22 consecutive fiscal years of
revenue growth. For more information about j2, please visit www.j2global.com.

“Safe Harbor” Statement Under the Private Securities Litigation
Reform Act of 1995: Certain statements in this Press Release are
“forward-looking statements” within the meaning of The Private
Securities Litigation Reform Act of 1995, including those contained in
Vivek Shah’s quote and the “Business Outlook” portion regarding the
Company’s expected fiscal 2018 financial performance. These
forward-looking statements are based on management’s current
expectations or beliefs and are subject to numerous assumptions, risks
and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. These factors
and uncertainties include, among other items: the Company’s ability to
grow non-fax revenues, profitability and cash flows; the Company’s
ability to identify, close and successfully transition acquisitions;
subscriber growth and retention; variability of the Company’s revenue
based on changing conditions in particular industries and the economy
generally; protection of the Company’s proprietary technology or
infringement by the Company of intellectual property of others; the risk
of adverse changes in the U.S. or international regulatory environments,
including but not limited to the imposition or increase of taxes or
regulatory-related fees; and the numerous other factors set forth in j2
Global’s filings with the Securities and Exchange Commission (“SEC”).
For a more detailed description of the risk factors and uncertainties
affecting j2 Global, refer to the 2017 Annual Report on Form 10-K filed
by j2 Global on March 1, 2018, and the other reports filed by j2 Global
from time-to-time with the SEC, each of which is available at www.sec.gov.
The forward-looking statements provided in this press release, including
those contained in Vivek Shah’s quote and in the “Business Outlook”
portion regarding the Company’s expected fiscal 2018 financial
performance are based on limited information available to the Company at
this time, which is subject to change. Although management’s
expectations may change after the date of this press release, the
Company undertakes no obligation to revise or update these statements.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared
and presented in accordance with GAAP, we use the following Adjusted
non-GAAP financial measures: Adjusted non-GAAP net income, Adjusted
non-GAAP earnings per diluted share, Adjusted EBITDA and free cash flow.
The presentation of this financial information is not intended to be
considered in isolation or as a substitute for, or superior to, the
financial information prepared and presented in accordance with GAAP.

We use these Adjusted non-GAAP financial measures for financial and
operational decision-making and as a means to evaluate period-to-period
comparisons. Our management believes that these Adjusted non-GAAP
financial measures provide meaningful supplemental information regarding
our performance and liquidity by excluding certain expenses and
expenditures that may not be indicative of our recurring core business
operating results. We believe that both management and investors benefit
from referring to these Adjusted non-GAAP financial measures in
assessing our performance and when planning, forecasting, and analyzing
future periods. These Adjusted non-GAAP financial measures also
facilitate management’s internal comparisons to our historical
performance and liquidity. We believe these Adjusted non-GAAP financial
measures are useful to investors both because (1) they allow for greater
transparency with respect to key metrics used by management in its
financial and operational decision-making and (2) they are used by our
institutional investors and the analyst community to help them analyze
the health of our business.

For more information on these Adjusted non-GAAP financial measures,
please see the appropriate GAAP to Adjusted non-GAAP reconciliation
tables included within the attached Exhibit to this release.

j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN THOUSANDS)

September 30, 2018

December 31, 2017

ASSETS

Cash and cash equivalents

$

303,524

$

350,945

Accounts receivable, net of allowances of $9,803 and $8,701,
respectively

176,758

234,195

Prepaid expenses and other current assets

33,864

35,287

Total current assets

514,146

620,427

Long-term investments

82,517

57,722

Property and equipment, net

98,016

79,773

Goodwill

1,314,301

1,196,611

Other purchased intangibles, net

496,982

485,751

Other assets

11,201

12,809

TOTAL ASSETS

$

2,517,163

$

2,453,093

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable and accrued expenses

$

158,919

$

169,837

Income taxes payable, current

8,186

—

Deferred revenue, current

126,931

95,255

Other current liabilities

415

10

Total current liabilities

294,451

265,102

Long-term debt

1,010,566

1,001,944

Deferred revenue, noncurrent

5,546

47

Income taxes payable, noncurrent

39,974

43,781

Liability for uncertain tax positions

55,694

52,216

Deferred income taxes, noncurrent

34,724

38,264

Other long-term liabilities

31,386

31,434

TOTAL LIABILITIES

1,472,341

1,432,788

Commitments and contingencies

—

—

Preferred stock

—

—

Common stock

480

479

Additional paid-in capital

345,670

325,854

Retained earnings

740,433

723,062

Accumulated other comprehensive loss

(41,761

)

(29,090

)

TOTAL STOCKHOLDERS’ EQUITY

1,044,822

1,020,305

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

2,517,163

$

2,453,093

j2 GLOBAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2018

2017

2018

2017

Total revenues

$

292,724

$

273,616

$

861,236

$

801,458

Cost of revenues (1)

49,217

42,371

145,112

126,339

Gross profit

243,507

231,245

716,124

675,119

Operating expenses:

Sales and marketing (1)

80,708

79,432

250,190

237,772

Research, development and engineering (1)

11,950

12,431

35,412

35,737

General and administrative (1)

93,792

76,425

272,926

232,118

Total operating expenses

186,450

168,288

558,528

505,627

Income from operations

57,057

62,957

157,596

169,492

Interest expense, net

15,175

25,326

46,428

51,406

Other expense (income), net

1,239

(3,890

)

6,150

660

Income before income taxes and net loss in earnings of equity method
investment

Non-GAAP net income is GAAP net income with the following modifications:
(1) elimination of share-based compensation and the associated payroll
tax expense; (2) elimination of certain acquisition related integration
costs; (3) elimination of interest costs in excess of the coupon rate
associated with the convertible notes; (4) elimination of amortization
of patents and intangible assets that we acquired; (5) elimination of
change in value on investment; (6) elimination of additional tax or
indirect tax related expense/benefit from prior years; (7) elimination
of gain on sale of businesses; and (8) elimination of dilutive effect of
the convertible debt.

Three Months Ended September 30,

2018

Per DilutedShare *

2017

Per DilutedShare *

Net income

$

30,723

$

0.61

$

32,358

$

0.66

Plus:

Share based compensation (1)

5,970

0.12

3,488

0.07

Acquisition related integration costs (2)

5,959

0.12

1,573

0.03

Interest costs (3)

1,561

0.03

8,603

0.18

Amortization (4)

30,005

0.62

22,526

0.47

Investments (5)

588

0.01

—

—

Tax expense (benefit) from prior years (6)

337

0.01

(184

)

(0.00

)

Sale of businesses (7)

—

—

(3,154

)

(0.07

)

Convertible debt dilution (8)

—

0.01

—

0.01

Adjusted non-GAAP net income

$

75,143

$

1.53

$

65,210

$

1.34

* The reconciliation of net income per share from GAAP to
Adjusted non-GAAP may not foot since each is calculated independently.

Nine Months Ended September 30,

2018

Per DilutedShare *

2017

Per DilutedShare *

Net income

$

78,072

$

1.57

$

89,554

$

1.81

Plus:

Share based compensation (1)

15,256

0.32

9,241

0.19

Acquisition related integration costs (2)

19,139

0.40

12,464

0.26

Interest costs (3)

4,164

0.09

11,898

0.25

Amortization (4)

85,676

1.78

65,891

1.38

Investments (5)

5,965

0.12

—

—

Tax expense from prior years (6)

337

0.01

1,875

0.04

Sale of businesses (7)

—

—

(3,154

)

(0.07

)

Convertible debt dilution (8)

—

0.03

—

0.04

Adjusted non-GAAP net income

$

208,609

$

4.24

$

187,769

$

3.85

* The reconciliation of net income per share from GAAP to
Adjusted non-GAAP may not foot since each is calculated independently.

Non-GAAP net income is GAAP net income with the following modifications:
(1) elimination of share-based compensation and the associated payroll
tax expense; (2) elimination of certain acquisition related integration
costs; (3) elimination of interest costs in excess of the coupon rate
associated with the convertible notes; (4) elimination of amortization
of patents and intangible assets that we acquired; (5) elimination of
change in value on investment; (6) elimination of additional tax or
indirect tax related expense/benefit from prior years; (7) elimination
of gain on sale of businesses; and (8) elimination of dilutive effect of
the convertible debt.

Three Months Ended September 30,

2018

2017

Cost of revenues

$

49,217

$

42,371

Plus:

Share based compensation (1)

(128

)

(120

)

Acquisition related integration costs (2)

(304

)

—

Amortization (4)

(546

)

(590

)

Adjusted non-GAAP cost of revenues

$

48,239

$

41,661

Sales and marketing

$

80,708

$

79,432

Plus:

Share based compensation (1)

(548

)

(365

)

Acquisition related integration costs (2)

(1,001

)

(1,212

)

Adjusted non-GAAP sales and marketing

$

79,159

$

77,855

Research, development and engineering

$

11,950

$

12,431

Plus:

Share based compensation (1)

(399

)

(296

)

Acquisition related integration costs (2)

(10

)

(1,026

)

Adjusted non-GAAP research, development and engineering

$

11,541

$

11,109

General and administrative

$

93,792

$

76,425

Plus:

Share based compensation (1)

(6,831

)

(3,782

)

Acquisition related integration costs (2)

(6,037

)

(2,219

)

Amortization (4)

(35,795

)

(31,160

)

Tax expense from prior years (6)

(378

)

—

Adjusted non-GAAP general and administrative

$

44,751

$

39,264

Interest expense, net

$

15,175

$

25,326

Plus:

Acquisition related integration costs (2)

(23

)

—

Interest costs (3)

(2,179

)

(11,755

)

Tax expense from prior years (6)

(57

)

—

Adjusted non-GAAP interest expense, net

$

12,916

$

13,571

Other expense (income), net

$

1,239

$

(3,890

)

Plus:

Acquisition related integration costs (2)

—

(304

)

Sale of businesses (7)

—

4,715

Adjusted non-GAAP other expense (income), net

$

1,239

$

521

Income tax provision

$

9,310

$

9,163

Plus:

Share based compensation (1)

1,936

1,075

Acquisition related integration costs (2)

1,416

3,188

Interest costs (3)

618

3,152

Amortization (4)

6,336

9,224

Investments (5)

22

—

Tax expense from prior years (6)

98

184

Sale of businesses (7)

—

(1,561

)

Adjusted non-GAAP income tax provision

$

19,736

$

24,425

Net loss in earnings of equity method investment

$

610

$

—

Plus:

Investments (5)

(610

)

—

Adjusted non-GAAP net loss in earnings of equity method investment

$

—

$

—

Total adjustments

$

(44,420

)

$

(32,852

)

GAAP earnings per diluted share

$

0.61

$

0.66

Adjustments *

$

0.91

$

0.68

Adjusted non-GAAP earnings per diluted share

$

1.53

$

1.34

* The reconciliation of net income per share from GAAP to
Adjusted non-GAAP may not foot since each is calculated independently.

The Company discloses Adjusted non-GAAP Earnings Per Share (“EPS”) as a
supplemental Non-GAAP financial performance measure, as it believes it
is a useful metric by which to compare the performance of its business
from period to period. The Company also understands that this Adjusted
non-GAAP measure is broadly used by analysts, rating agencies and
investors in assessing the Company’s performance. Accordingly, the
Company believes that the presentation of this Adjusted non-GAAP
financial measure provides useful information to investors.

Adjusted non-GAAP EPS is not in accordance with, or an alternative to,
net income per share and may be different from Non-GAAP measures with
similar or even identical names used by other companies. In addition,
this Adjusted non-GAAP measure is not based on any comprehensive set of
accounting rules or principles. This Adjusted non-GAAP measure has
limitations in that it does not reflect all of the amounts associated
with the Company’s results of operations determined in accordance with
GAAP.

Non-GAAP net income is GAAP net income with the following modifications:
(1) elimination of share-based compensation and the associated payroll
tax expense; (2) elimination of certain acquisition related integration
costs; (3) elimination of interest costs in excess of the coupon rate
associated with the convertible notes; (4) elimination of amortization
of patents and intangible assets that we acquired; (5) elimination of
change in value on investment; (6) elimination of additional tax or
indirect tax related expense/benefit from prior years; (7) elimination
of gain on sale of businesses; and (8) elimination of dilutive effect of
the convertible debt.

Nine Months Ended September 30,

2018

2017

Cost of revenues

$

145,112

$

126,339

Plus:

Share based compensation (1)

(378

)

(357

)

Acquisition related integration costs (2)

(347

)

(195

)

Amortization (4)

(1,686

)

(2,348

)

Adjusted non-GAAP cost of revenues

$

142,701

$

123,439

Sales and marketing

$

250,190

$

237,772

Plus:

Share based compensation (1)

(1,380

)

(1,265

)

Acquisition related integration costs (2)

(1,925

)

(3,684

)

Adjusted non-GAAP sales and marketing

$

246,885

$

232,823

Research, development and engineering

$

35,412

$

35,737

Plus:

Share based compensation (1)

(1,187

)

(815

)

Acquisition related integration costs (2)

(285

)

(1,850

)

Adjusted non-GAAP research, development and engineering

$

33,940

$

33,072

General and administrative

$

272,926

$

232,118

Plus:

Share based compensation (1)

(18,448

)

(11,303

)

Acquisition related integration costs (2)

(20,461

)

(10,507

)

Amortization (4)

(102,664

)

(94,095

)

Tax expense from prior years (6)

(378

)

(3,007

)

Adjusted non-GAAP general and administrative

$

130,975

$

113,206

Interest expense, net

$

46,428

$

51,406

Plus:

Acquisition related integration costs (2)

(68

)

—

Interest costs (3)

(6,443

)

(16,644

)

Tax expense from prior years (6)

(57

)

—

Adjusted non-GAAP interest expense, net

$

39,860

$

34,762

Other expense, net

$

6,150

$

660

Plus:

Acquisition related integration costs (2)

—

(2,938

)

Investments (5)

(2,900

)

—

Sale of businesses (7)

—

4,715

Adjusted non-GAAP other expense, net

$

3,250

$

2,437

Income tax provision

$

23,365

$

27,872

Plus:

Share based compensation (1)

6,137

4,499

Acquisition related integration costs (2)

3,947

6,710

Interest costs (3)

2,279

4,746

Amortization (4)

18,674

30,552

Investments (5)

516

—

Tax expense from prior years (6)

98

1,132

Sale of businesses (7)

—

(1,561

)

Adjusted non-GAAP income tax provision

$

55,016

$

73,950

Net loss in earnings of equity method investment

$

3,581

$

—

Plus:

Investments (5)

(3,581

)

—

Adjusted non-GAAP net loss in earnings of equity method investment

$

—

$

—

Total adjustments

$

(130,537

)

$

(98,215

)

GAAP earnings per diluted share

$

1.57

$

1.81

Adjustments *

$

2.67

$

2.04

Adjusted non-GAAP earnings per diluted share

$

4.24

$

3.85

* The reconciliation of net income per share from GAAP to
Adjusted non-GAAP may not foot since each is calculated independently.

The Company discloses Adjusted non-GAAP Earnings Per Share (“EPS”) as a
supplemental Non-GAAP financial performance measure, as it believes it
is a useful metric by which to compare the performance of its business
from period to period. The Company also understands that this Adjusted
non-GAAP measure is broadly used by analysts, rating agencies and
investors in assessing the Company’s performance. Accordingly, the
Company believes that the presentation of this Adjusted non-GAAP
financial measure provides useful information to investors.

Adjusted non-GAAP EPS is not in accordance with, or an alternative to,
net income per share and may be different from Non-GAAP measures with
similar or even identical names used by other companies. In addition,
this Adjusted non-GAAP measure is not based on any comprehensive set of
accounting rules or principles. This Adjusted non-GAAP measure has
limitations in that it does not reflect all of the amounts associated
with the Company’s results of operations determined in accordance with
GAAP.

Non-GAAP Financial Measures

To supplement its condensed consolidated financial statements, which are
prepared and presented in accordance with US GAAP, the Company uses the
following Non-GAAP financial measures: Adjusted EBITDA, Adjusted
non-GAAP net income, and Adjusted non-GAAP diluted EPS (collectively the
“Non-GAAP financial measures”). The presentation of this financial
information is not intended to be considered in isolation or as a
substitute for, or superior to, the financial information prepared and
presented in accordance with U.S. GAAP. The Company uses these Non-GAAP
financial measures for financial and operational decision making and as
a means to evaluate period-to-period comparisons. The Company believes
that they provide useful information about core operating results,
enhance the overall understanding of past financial performance and
future prospects, and allow for greater transparency with respect to key
metrics used by management in its financial and operational decision
making.

(1) Share Based Compensation. The Company excludes stock-based
compensation because it is non-cash in nature and because the Company
believes that the Non-GAAP financial measures excluding this item
provide meaningful supplemental information regarding operational
performance. The Company further believes this measure is useful to
investors in that it allows for greater transparency to certain line
items in its financial statements. In addition, excluding this item from
the Non-GAAP measures facilitates comparisons to historical operating
results and comparisons to peers, many of which similarly exclude this
item.

(2) Acquisition Related Integration Costs. The Company excludes
certain acquisition and related integration costs such as adjustments to
contingent consideration, severance, lease terminations, retention
bonuses and other acquisition-specific items. The Company believes that
the Non-GAAP financial measures excluding this item provide meaningful
supplemental information regarding operational performance. In addition,
excluding this item from the Non-GAAP measures facilitates comparisons
to historical operating results and comparisons to peers, many of which
similarly exclude this item.

(3) Interest Costs. In June 2014, the Company issued $402.5
million aggregate principal amount of 3.25% convertible senior notes. In
accordance with GAAP, the Company separately accounts for the value of
the liability and equity features of its outstanding convertible senior
notes in a manner that reflects the Company’s non-convertible debt
borrowing rate. The value of the conversion feature, reflected as a debt
discount, is amortized to interest expense over time. Accordingly, the
Company recognizes imputed interest expense on its convertible senior
notes of approximately 5.8% in its income statement. The Company
excludes the difference between the imputed interest expense and the
coupon interest expense of 3.25% because it is non-cash in nature and
because the Company believes that the Non-GAAP financial measures
excluding this item provide meaningful supplemental information
regarding core operational performance. In addition, the Company has
excluded 3 days of overlapping interest expense in June and the month of
July in connection with the 8.0% senior unsecured notes and deferred
issuance costs associated with the repayment of the line of credit. The
Company has determined excluding these items from the Non-GAAP measures
facilitates comparisons to historical operating results and comparisons
to peers, many of which similarly exclude this item.

(4) Amortization. The Company excludes amortization of patents
and acquired intangible assets because it is non-cash in nature and
because the Company believes that the Non-GAAP financial measures
excluding this item provide meaningful supplemental information
regarding operational performance. In addition, excluding this item from
the Non-GAAP measures facilitates comparisons to historical operating
results and comparisons to peers, many of which similarly exclude this
item.

(5) Change in Value on Investments. The Company excludes the
change in value on its equity investments. The Company believes that the
Non-GAAP financial measures excluding this item provide meaningful
supplemental information regarding operational performance. In addition,
excluding this item from the Non-GAAP measures facilitates comparisons
to historical operating results.

(6) Tax Expense/Benefit from Prior Years. The Company excludes
certain income tax-related items in respect of income tax audit
settlements and their related FIN 48 accrual reversals. The Company
believes that the Non-GAAP financial measures excluding this item
provide meaningful supplemental information regarding operational
performance. In addition, excluding this item from the Non-GAAP measures
facilitates comparisons to historical operating results.

(7) Gain on Sale of Businesses. The company excludes the gain on
sale of its businesses of Cambridge BioMarketing LLC and Web24. The
company believes that the Non-GAAP financial measures excluding this
item provide meaningful supplemental information regarding operational
performance. In addition, excluding this item from the Non-GAAP measures
facilitates comparisons to historical operating results.

The Company presents Adjusted non-GAAP cost of revenues, Adjusted
non-GAAP research, development and engineering, Adjusted non-GAAP sales
and marketing, Adjusted non-GAAP general and administrative, Adjusted
non-GAAP interest expense, Adjusted non-GAAP other income, Adjusted
non-GAAP income tax provision and Adjusted non-GAAP net income because
the Company believes that these provide useful information about our
operating results and enhance the overall understanding of past
financial performance and future prospects.

j2 GLOBAL, INC. AND SUBSIDIARIES

NET INCOME TO ADJUSTED EBITDA RECONCILIATION

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(UNAUDITED, IN THOUSANDS)

The following table sets forth a reconciliation of Adjusted EBITDA
to net income, the most directly comparable GAAP financial measure.

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

2018

2017

Net income

$

30,723

$

32,358

$

78,072

$

89,554

Plus:

Interest expense, net

15,175

25,326

46,428

51,406

Other expense, net

1,239

521

6,150

2,438

Income tax expense

9,310

9,163

23,365

27,872

Depreciation and amortization

46,375

39,372

132,850

118,597

Reconciliation of GAAP to Adjusted non-GAAP financial measures:

Share-based compensation and the associated payroll tax expense

7,906

4,563

21,393

13,740

Acquisition-related integration costs

7,352

4,761

23,018

19,174

Investments

610

—

3,581

—

Additional indirect tax expense from prior years

378

—

378

3,007

Sale of businesses

—

(4,715

)

—

(4,715

)

Adjusted EBITDA

$

119,068

$

111,349

$

335,235

$

321,073

Adjusted EBITDA as calculated above represents earnings before interest
and other expense, net, income tax expense, depreciation and
amortization and the items used to reconcile GAAP to Adjusted non-GAAP
financial measures, including (1) share-based compensation, (2) certain
acquisition-related integration costs, (3) change in value on
investments, (4) additional indirect tax expense from prior years and
(5) certain gains on sale of businesses. We disclose Adjusted EBITDA as
a supplemental Non-GAAP financial performance measure as we believe it
is a useful metric by which to compare the performance of our business
from period to period. We understand that measures similar to Adjusted
EBITDA are broadly used by analysts, rating agencies and investors in
assessing our performance. Accordingly, we believe that the presentation
of Adjusted EBITDA provides useful information to investors.

Adjusted EBITDA is not in accordance with, or an alternative to, net
income, and may be different from Non-GAAP measures used by other
companies. In addition, Adjusted EBITDA is not based on any
comprehensive set of accounting rules or principles. This Adjusted
non-GAAP measure has limitations in that it does not reflect all of the
amounts associated with the Company’s results of operations determined
in accordance with GAAP.

j2 GLOBAL, INC. AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES

(UNAUDITED, IN THOUSANDS)

Q1

Q2

Q3

Q4

YTD

2018

Net cash provided by operating activities

$

103,910

$

102,383

89,823

$

—

$

296,116

Less: Purchases of property and equipment

(13,165

)

(15,393

)

(16,370

)

—

(44,928

)

Free cash flows

$

90,745

$

86,990

$

73,453

$

—

$

251,188

Q1

Q2

Q3

Q4

YTD

2017

Net cash provided by operating activities

$

51,191

$

60,464

$

67,341

$

85,424

$

264,420

Less: Purchases of property and equipment

(9,660

)

(9,285

)

(10,538

)

(10,112

)

(39,595

)

Add: Contingent consideration*

20,000

19,950

—

—

39,950

Free cash flows

$

61,531

$

71,129

$

56,803

$

75,312

$

264,775

* Free cash flows of $61.5 million for Q1 2017 and $71.1 million for Q2
2017 is before the effect of payments associated with certain contingent
consideration associated with recent acquisitions.

The Company discloses Free cash flows as supplemental Non-GAAP financial
performance measure, as it believes it is a useful metric by which to
compare the performance of its business from period to period. The
Company also understands that this Non-GAAP measure is broadly used by
analysts, rating agencies and investors in assessing the Company’s
performance. Accordingly, the Company believes that the presentation of
this Non-GAAP financial measure provides useful information to investors.

Free cash flows is not in accordance with, or an alternative to, Cash
Flows from Operating Activities, and may be different from Non-GAAP
measures with similar or even identical names used by other companies.
In addition, the Non-GAAP measure is not based on any comprehensive set
of accounting rules or principles. This Non-GAAP measure has limitations
in that it does not reflect all of the amounts associated with the
Company’s results of operations determined in accordance with GAAP.

j2 GLOBAL, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED NON-GAAP FINANCIAL MEASURES

THREE MONTHS ENDED SEPTEMBER 30, 2018

(UNAUDITED, IN THOUSANDS)

Cloud

Digital

Services

Media

Corporate

Total

Revenues

GAAP revenues

$

150,094

$

142,628

$

2

$

292,724

Gross profit

GAAP gross profit

$

118,326

$

125,179

$

2

$

243,507

Non-GAAP adjustments:

Share-based compensation

126

2

—

128

Acquisition related integration costs

267

37

—

304

Amortization

546

—

—

546

Adjusted non-GAAP gross profit

$

119,265

$

125,218

$

2

$

244,485

Operating profit

GAAP operating profit

$

57,117

$

6,994

$

(7,054

)

$

57,057

Non-GAAP adjustments:

Share-based compensation

1,561

2,018

4,327

7,906

Acquisition related integration costs

851

6,501

—

7,352

Amortization

12,636

22,956

749

36,341

Additional indirect tax expense from prior years

378

—

—

378

Adjusted non-GAAP operating profit

$

72,543

$

38,469

$

(1,978

)

$

109,034

Depreciation

2,410

7,624

—

10,034

Adjusted EBITDA

$

74,953

$

46,093

$

(1,978

)

$

119,068

NOTE 1: Table above excludes certain intercompany allocations

NOTE 2: The table above is impacted by several effects including
(a) the Company determined certain patent assets and related income and
expenses associated with Advanced Messaging Technologies, Inc. were
reclassified from the Cloud Services segment to Corporate which resulted
in an increase in non-GAAP operating profit of $0.3 million to the Cloud
Service segment with a corresponding decrease to the Corporate entity;
and (b) certain expenses associated with Corporate were allocated to the
Cloud Services and Digital Media segment as these costs are shared costs
incurred by the Corporate entity. As a result, expenses were allocated
from Corporate to Cloud Services and Digital Media segment in the amount
of $1.5 million and $1.5 million, respectively.

The effects noted above reduce Adjusted EBITDA for the Cloud Services
and Digital Media segment by $1.2 million and $1.5 million, respectively.